The big meltdown

Stripping lead off church roofs or taking discarded copper pipes was once the preserve of the petty thief. But now, with the price of raw materials at an all-time high, there's big money to be made from stealing metal on a giant scale. And it's all feeding the insatiable growth of China, the world's newest industrial nation. Aida Edemariam reports

The big meltdown

Stripping lead off church roofs or taking discarded copper pipes was once the preserve of the petty thief. But now, with the price of raw materials at an all-time high, there's big money to be made from stealing metal on a giant scale. And it's all feeding the insatiable growth of China, the world's newest industrial nation. Aida Edemariam reports

If you regularly travel on Britain's trains - to work this morning, perhaps - you will be familiar with the roll-call of reasons why they are running late: leaves on the line; track fires; floods; late arrival of the inbound service. And, as often as not, signal failure. You may have wondered, idly, what that actually meant. Yes, train schedules are complicated, but surely they've got the hang of a few switches by now?

Look further and you realise that the rail services are only partly to blame. Copper wire, used as a conductor in signalling systems, keeps going missing. This month, in fact, it was reported that metal thefts on the railways increased by nearly 70% last year, and caused 2,500 hours of delays. Ian Johnston, chief constable of the British Transport Police, has declared the issue their second-biggest challenge after terrorism.

And it isn't just the railways. According to the Police Review, metal theft is the fastest-growing crime in the UK. The copper in any kind of cable will do - Peter Kendall, president of the National Farmers Union, for example, kept losing his internet connection because thieves repeatedly pulled the cable to his farmhouse down off its poles, even using his farmyard to melt it down - but it is not just copper. A couple of weeks ago, the royal yacht Britannia lost her two metre-long phosphor bronze propellers. The £3m bronze sculpture taken from the Henry Moore Foundation in Hertfordshire in 2005 is thought to have been destined for the melting pot. So much lead has been stripped off church roofs that insurers have sent 16,500 churches "smart water" with which to paint them - every roof is then uniquely traceable.

Cast-iron manhole covers are famously prone to disappearance: Newham council in London, for example, spends £60,000 a year replacing them. According to Police Professional magazine, 400,000 beer kegs went missing last year. Aluminium kegs are particularly popular, but the stainless steel ones go walkabout too. Catalytic converters, which contain platinum, are taken from cars. A hundred Devon road signs (made of aluminium) disappeared in one night. Whole bus shelters in West Bromwich have been cut away. The "stolen metal alert" section of the British Metals Recycling Association's website (designed to warn scrap metal dealers of dodgy consignments) includes this slightly plaintive note from Network Rail: "Stainless steel doors from lockable cabinets housing electronic rail equipment are continually being taken from various sites around the UK, causing numerous safety issues." According to the Electricity Security Managers Forum, metal theft costs UK industry an estimated £360m a year.

And it is not just the UK. Whole sections of Melbourne were gridlocked last December when copper was stripped from automatic railway barriers and they all closed as a safety measure. In February, an entire four-tonne iron railway bridge went missing in Bohemia, near the Czech-German border; two bridges went missing in Russia, and two in Macedonia. What was thought to be an anti-semitic crime - the disappearance of 320 plaques from the cemetery next to the former Nazi camp of Theresienstadt in the Czech Republic - turns out to have been a particularly gruesome bit of bronze-scavenging instead. Scrap metal gangs have been stripping the copper wiring from American houses abandoned when their owners had to default on mortgages. "The damage caused is often disproportionate to the price of the copper they have stolen," one broker has said. "Once the thieves rip out copper wiring and maybe a pipe from the front of a boiler, they could get perhaps $300 in cash at the scrap metal merchant. But the damage they cause could run to $15,000." This makes the houses far harder to sell, and is actively slowing the rate of recovery in the housing market - with global knock-on effects.

The simple explanation for all this is that there is more money in metal-pilfering than there has ever been before. The price of copper, for example, rose by 332% between January 2003 and January 2008, according to the London Metal Exchange; if you were selling a tonne of pure copper for cash today you could pocket nearly £4,300 (scrap copper, according to Paul Sanderson, editor of Materials Recycling Weekly, would get you £2,500). Pure lead would net you £1,800 or so (scrap starts at £275 a tonne). There has been a 75% increase in the price of aluminium. The Western Cape Investment and Trade Promotion Agency, in South Africa, has estimated that the province exported £5.5m worth of copper to China last year - quite an achievement for an area that has no copper mines.

And therein lies the more complicated, and more interesting, explanation. Global demand for these commodities is at a rising high - and that demand is driven, in large part, by fast-industrialising economies such as India, Brazil and, particularly, China, which is where a lot of this metal is going. The British scrap metal trade is a legitimate international business worth £4bn. The UK, according to the British Metals Recycling Association, exports 60% of its recovered metal, and while most of it is entirely above-board and legal, "we know," says a spokesman for the British Transport Police, "there's more arriving in the far east than we have specifically leaving".

Commentators have talked, glibly, about all the steel needed to build Beijing's Olympic "bird's nest" stadium, but that isn't even a drop in the proverbial ocean required by a country which, by some estimates, will need to build 50 cities the size of London in the next 20 years; a country that has already achieved, in 30 years, a level of industrialisation that took Britain and the west 300.

During that 30 years, Chinese industrialisation has brought untold levels of advantage to Britain, and the west in general, through the "Chinese effect", whereby cheap goods - everything from clothes to electronics to toys - have offset rising prices for domestically produced goods, and kept the cost of living, and thus inflation, down. China has, in fact, says Alexandra Harney, author of The China Price: The True Cost of Chinese Competitive Advantage, "subsidised our way of life". And, as is becoming more clear by the day, it has been an unprecedentedly prosperous way of life.

In order to maintain the so-called China Price (ie lower than everyone else and thus impossible to compete against), China needs more and more raw stuff. When Mark Leonard, executive director of the European Council on Foreign Relations was writing his book, What Does China Think?, last year, the country was using 40% of the world's cement, 40% of its coal, 30% of its steel, and 12% of its energy. According to the British Metals Recycling Association, 35% of the recovered aluminium exported by the UK goes to China (and 72% of it to Asia in general); 43% of the recovered copper goes to China (and 66% to Asia in general).

There are many reasons for the rising oil prices - which neared $140 a barrel last week - not least the global instability caused by the Iraq war. But demand from China and other fast-developing nations is a major factor too. It is, says Leonard, "the first time that an oil crisis has been driven by demand rather than supply. If you look at former oil prices, it's been about supply contracting - in 1973, it was a result of the Yom Kippur war, or the activities of Opec [the Organisation of the Petroleum Exporting Countries], which led to a contraction in supply. Whereas actually supply has been static or increasing."

Demand in Europe is hardly going up at all; in fact, in some places it is even going down, "whereas in China and, to a lesser extent India, oil consumption and energy consumption generally is increasing massively," Leonard says. "And they're incredibly inefficient as well, so for every £1 of economic growth in China you have several times the increase of energy consumption as you do for economic growth in an OECD [Organisation for Economic Co-operation and Development] country." This is creating another unusual crime wave in Britain - the theft of domestic heating oil, pumped straight out of people's backyards. "There's a great big sucking sound coming from China," says Leonard, "as they basically are just absorbing all of these different commodities."

But China is also paying a price. "They're operating under extreme pressure," says Harney, who visited factory after factory to research her book. "Obviously they want to make a profit, and that would be a pressure that any business would feel. But they also are part of a global supply chain that's moving faster and faster every year, where delivery times for lots of products are getting shorter and shorter. The time between placing the order and needing to leave the port, for many industries, is getting shorter. "

At the same time, "costs are rising very fast in China. Everything is getting more expensive - land, labour, litigation costs for labour disputes. There's a labour shortage in southern China, which drives up wages further."

One of her major discoveries was of a shadow economy. For example, she met a factory owner in Guangdong, a big export province, who explained to her that he was finding it too difficult and expensive to dispose of rubbish from his factories within existing guidelines. "And so someone would come in the middle of the night and take away his trash. This was not one of the approved trash collectors - it was a special deal he had on the side," she says. Then there was the man who had set up an entire shadow factory, because he simply could not meet targets using his official one. "He set up a separate, illegal subcontractor so that he could supply the goods at the low prices that he needed to." In this context you can see why people might turn a blind eye to metal of dubious provenance, especially if it is a bit cheaper.

But, says Harney baldly, this is unsustainable. "So what you see in China now is an attempt by Beijing to wean the economy off dependence on exports and refocus it on domestic consumption. It's not something that's going to happen overnight, and it's not necessarily easy to do, but that's what China is trying to do. It's introduced an incredible number of policies over the past year or two that have really changed the game for a lot of export manufacturers.

"It's a lot harder to make money in export manufacturing in China today than it used to be," she says. "Not only has the cost of every input gone up, but also the tax regime has changed, the labour law has changed. There are reportedly hundreds of manufacturers shutting down, because they just can't take it."

This would have an interesting effect on the west, to say the least. The governor of the Bank of England, Mervyn King, warned last week that we should expect 4% inflation by the end of the year; according to the Office for National Statistics, the May inflation rate was the highest since the summer of 1992. King says he expects this rise in the cost of living to last until about 2009; others, such as Harney, believe this is just a beginning. "China for decades exported deflation; now it will be exporting inflation.

And I believe that will continue for many years to come."

We are already complaining, vociferously, about having to spend a bit more for less; about our slightly higher mortgages, about a few bits of nicked copper and lead (which, in an amusing bit of circularity, might go to make the cheap watches and DVD players that we buy), but, says Leonard, let's get it into perspective - elsewhere the effect is far more dire. Rocketing commodity prices have "had a huge impact on developing countries. Because what the developed world was telling Africans was that they should focus on developing manufacturing industries and finished products rather than simply exporting unfinished goods and commodities - whereas, in fact, when they've tried to go into manufacturing and finished goods they've been completely uncompetitive against China, which is mass-producing these goods at a much lower price."

Countries such as Ethiopia are increasingly flooded with cheap, industry-undercutting goods - at the same time as prices for oil and food are increasing. "We're the most insulated from these things," says Leonard. "It doesn't kill us. You might think twice about going on a very long car journey, or attempt to do things in a more energy-efficient way, but the impact is much less great. We're not deciding whether to have dinner or not." Or rioting. Yet.

At the same time China, desperate for commodities, is aggressively searching for them all over the world. This week, its largest steel-maker, Bayosteel, agreed to double the price it pays mining giant Rio Tinto for iron ore. And last week, the BBC's John Simpson reported from a mountain in Peru that is copper-rich: the Chinese have bought the whole thing for a bargain price and are in the process of moving a sizeable town in order to strip-mine the ground beneath it. It won't be that long before the mountain is gone. Need is leading them to invest, says Leonard, "in all these dodgy regimes in the world, from Zimbabwe to Iran to Sudan. And that's also changing the balance of power in those parts of the world. So China has emerged as an incredibly influential broker in all these places, and they're places that we don't necessarily associate with China."

From the western point of view, there are positive aspects to these developments - of a sort. "Five years ago, the big talk in the west was how Chinese banks were going to collapse because they had non-performing loans. But now it's American and British banks that are collapsing," he says. "And it's probably going to be Chinese banks that bail them out. That's the big hope - that Chinese investment could be part of a solution to this growing balance of trade problem. So at least there's a silver lining."

But it is a silver lining only in a certain, short-termist light. Being able to shore up western banks provides China with yet another sphere of influence over the west, which is long-term, and political. "People often ask if China is reforming," says Leonard, "and what they really mean is, 'How quickly is China becoming like us?' Because it's not just economic and military power that's shifting from west to east. China is emerging as an intellectual power. It's coming up with its own ideas, which are very influential, which other people are copying.

The debate we're having about managing China's rise has got a mirror image in China, where they're having an argument about how to manage the west's decline. In the US, they're talking about what mix to have of containment and engagement, to try to get the China that they want. But what's interesting is that the Chinese are thinking about how they can shape an America that is organised in a way that benefits their interests."

We now live in a world where every industry you can think of is intimately linked with China. As Harney puts it, "What happens in China now matters to all of us. Because it comes into our homes every day." And we need to pay attention. Because it is probably not too much to say that our late-running trains, our denuded church roofs, our missing manhole covers, may well herald a new world order.